Government hasn't dug itself out of school funding hole with PIT yet

The Australian Government’s announcement on 20 September 2018 of new funding arrangements gives independent schools certainty for the period 2019 to 2021. Although the focus of the announcement has been the $4.6 billion in additional funding for non-government schools over the next decade, little examination has been made of the significant change in the funding arrangements involving the replacement of the long-standing measure to determine the capacity of parents to contribute – the Socio-economic Status or SES score – with a new measure – Parental Income Tax (PIT).

The new measure of PIT will be implemented from 2022, although schools will be given the option of being funded under the PIT methodology from 2020 should it result in a better outcome for them compared to SES.

The implementation of PIT, on current information, involves significant uncertainty for schools post-2021.

As independent schools are now discovering, it is not currently possible to determine the impact PIT will have on an individual school’s future funding. Further, clarity about PIT scores at the school level is not likely until mid-2019 at the earliest.

Not only is there incomplete and insufficient data available on PIT as it applies to individual schools at the current time, there are many policy and technical questions in relation to the PIT measure that need to be urgently examined.

In the past, funding models for schools have been thoroughly researched and validated prior to their adoption. It is surprising that this new PIT measure has been accepted for implementation prior to any rigorous validation and testing.

The replacement of SES by PIT results from the recommendation of the National School Resourcing Board (NSRB) as outlined in their report Review of the socio-economic status score methodology.The review of SES was established as part of the passage of legislative amendments to the Australian Education Act in 2017 to provide for the Gonski 2.0 funding model under the Coalition’s Quality Schools, Quality Outcomes package.

The PIT links each student’s address to parental income through Australian Taxation Office data.

It is hard to argue that a direct measure of parental income, such as PIT, will not be a better measure of parent’s capacity to contribute than an area-based methodology such as SES.

However, a key policy issue is whether using a direct income measure is appropriate to set a school per student funding rate. In other areas of Government payments where direct income measures are used, such as early childhood, the funding goes directly to the parent and therefore can be linked directly to the individual’s capacity to pay. Ideally under the PIT methodology, each parent would receive a level of Government funding commensurate with their level of income as opposed to the current system where each parent receives a level of Government funding based on the income of the entire parent population of the school.

This would mean a “voucher” type system. Unfortunately, consideration of any such concept does not appear to have featured in determining the new funding arrangements. population of the school. This would mean a “voucher” type system. Unfortunately, consideration of any such concept does not appear to have featured in determining the new funding arrangements.

On the current proposal, parental gross income will be used to determine the PIT score. Is this a more appropriate measure than net income (i.e. after deductions for tax purposes)? Or further, should the measure be about disposable income (i.e. after-tax income) which is ultimately what parents have available to spend on school fees?

There is also the question of whether there should be a separate PIT score for primary and secondary students. Common sense would suggest that the parents of secondary students are likely to have higher incomes in general than the parents of primary students. They will be older and further progressed in their careers. By setting a funding rate for a school on a per student basis there is significant potential to disadvantage the parents of primary students where that rate might be more in line with the income of parents of secondary students.

The currently proposed PIT measure uses medium income of a school’s parents to determine a funding rate for the school. This needs to be researched to ensure that it is the appropriate measure. The medium means that 50% of parents at a school will be below the PIT figure whilst 50% will be above. This seems to guarantee that up to 50% of parents may have difficulty meeting the fees that a school might set based on the Government funding rate.

Further examination is also required in relation to the spread of incomes for an individual school. It is highly unlikely that parent income at a school will resemble a bell curve. For example. there does not appear to have been any rigorous testing by the National School Resourcing Board (NSRB) of the potential implications where a large majority of parents below the medium income for a school are well below that medium.

The currently proposed PIT methodology does not account for family size and its relationship to PIT. Parents on the same income, but with a different number of children, will have significantly different capacities to contribute to school costs. If family size is to be a factor in the determination of Government funding, should it be all dependents or just school-aged children? Should any income generated by children be considered (for example, a teenager working part-time)?

No work has been done on testing what the potential variation of PIT scores might be on a year-to-year basis. This is almost certain to be the case for many schools (for example, small schools and schools in rural areas where incomes may fluctuate considerably from year to year). Whilst there has been the NSRB suggestion that the PIT be based on a three-year rolling average, this has not yet been confirmed by the Government.

Several other issues have the potential to erode community confidence in PIT as a method for determining Government grants including students in split family circumstances where the income of one parent may not reflect the capacity to pay of both parents, where for parents do not generate a Tax Return and the use of tax minimisation strategies. Similarly, data would suggest that for some students, school fees are paid by grandparents and in such cases, the income of the parent may not be relevant.

Many of the policy and technical issues associated with the new PIT have been recognised by the Federal Minister for Education, the Hon Dan Tehan, who has agreed to the establishment of a working party to examine several issues associated with the PIT methodology.

That these will be examined after PIT has been formally announced by the Government as the funding mechanism to apply from 2020 gives a clear indication that the political and policy environment in terms of schools funding remains highly charged and unstable.

The policy and technical issues should have been thoroughly examined and debated well before any formal adoption of the PIT measure. It would appear the development of PIT has been undertaken in a degree of secrecy and haste with the NSRB only revealing its draft recommendations about six weeks out from the release of its report.

Whilst the NSRB in its report claims to have undertaken extensive consultation with the non-government schooling sectors, the reality is there was little consultation on a new direct measure and issues raised by the independent sector in the limited consultation seemed to have largely been ignored.

Nor has any rigorous assessment of the impact of PIT on particular groups of schools or cohorts of students been undertaken. The Minister has recognised this by including in the list of matters to be examined “the impact on regional, rural and boarding schools”. The one year of PIT data made available by the NSRB has less than desirable matching rates with over 30% of independent schools not achieving matching rates of 80%. This will need to be addressed before PIT can be confirmed as a valid and reliable measure.

Independent schools rightly need to take a cautious approach to assessing the implications of PIT on their future funding. There is much work to be done to validate that PIT, as currently proposed, is appropriate and the best measure available to determine parents’ capacity to contribute to school costs in the non-government sector.

Independent Schools Queensland will be engaging with the Australian Government around these issues. The PIT methodology is too important to simply ignore significant policy and technical questions which ultimately have a significant impact at the school level in terms of Australian Government funding.